Forecasting using financial models;

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FORECASTING
USING FINANCIAL MODELS
by Kenneth G. Krueger Partner, Colorado Springs Office and Kenneth S. Smith Manager, San Francisco Office
Presented by Mr. Krueger before the Colorado-Wyoming Chapter, Hospital Financial Management Association—September 1972
Financial forecasting has been an important management tool in industry for many years. In the health care field, it is now nearly impossible to cope with reimbursement formulas, Economic Stabilization Program controls, rate setting, cost controls, and other daily informational demands without some reliable and efficient means of forecasting future operations. The Social Security Amendments of 1972 (Public Law 92-603) require, as a condition of participation under Medicare, that providers have written operating and capital expenditures budgets covering one and three subsequent accounting years. Several states are using prospective rates for Medicaid coverage. The advent of prepayment and capitation payments for health care receives ever increasing attention. Each new development makes the need for financial forecasting more pressing.
A practical tool available to assist financial managers with the mechanics of preparing and modifying financial forecasts is the financial model stored in a time-sharing computer. The purpose of this article is to describe financial modeling using time-sharing.
TIME SHARING
For those readers not yet initiated, the sharing of a computer by several users simultaneously is called "time-sharing." Access to the computer is provided by a "terminal," usually with a typewriter-like keyboard, on which messages are fed into the computer and on which the computer makes its responses. Time-sharing is used by telephoning the computer time-sharing utility and placing the receiver in the connector to the terminal. The coded word necessary for user identification (and for billing) is typed on the computer terminal, and, when that is cleared, the computer is instructed as to the program to be used. The data required to run the program is then entered.
Among the advantages of a time-sharing computer are the facility with which a stored program can be made available to licensed users and, of